Compliance August 10, 2010

EBSA Schedules VFCP Seminar for the Big Apple

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) will hold a free New York City workshop on September 1 about its Voluntary Fiduciary Correction Program (VFCP).

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A news release said EBSA staff will be on hand to provide one-on-one program assistance and guidance on the application process during the 10 a.m. to 1 p.m. session. The VFCP allows sponsors to identify and self-correct potential problems that might otherwise incur investigative or enforcement actions.

VFCP participants must fully correct eligible transactions, calculate any losses, restore those losses with interest or profits, and distribute any supplemental benefits owed to eligible participants and beneficiaries.  The program also offers relief from Labor Department penalties and, in some cases, from the Internal Revenue Service excise taxes that may otherwise be imposed. 

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Availability is limited and pre-registration is recommended.  The workshop will be held at 33 Whitehall St., 11th floor, in New York City. For more information, contact Jeffrey Singer at 212-607-8663 or singer.jeffrey@dol.gov. 

More information about the VFCP is here. 

 

Data & Research August 9, 2010

Survey Finds "Flash Crash" Caused by Issues Related to Market Structure

BlackRock, Inc. released research findings on financial advisers' perceptions of and impact from the May 6th market event known as the “Flash Crash.”  
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The survey, which was commissioned by the iShares Exchange Traded Funds (ETFs) business and conducted by Market Strategies International, found that the majority of advisers believe market structure issues were the primary driver of the sharpest single-day point decline in Dow Jones history.  

Advisers pointed to an overreliance on computer systems and high-frequency trading as the primary drivers that contributed to the extreme market volatility on May 6th. Advisers listed the use of stop-loss orders, the support of market makers and questions with exchange routing rules among the secondary contributors. 

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The survey also indicated that most advisers’ accounts were not impacted by the events of May 6th. Only about a quarter of advisers reported a stop-loss order at a significantly reduced value, the most common outcome of the “Flash Crash.” 

According to the survey, advisers are encouraged with the initial recommendations by the SEC to make the needed changes to market structure. Those surveyed endorsed the single-stock circuit breaker rule proposed by the SEC as one of the primary solutions to address the causes of the May 6th market decline, as well as placing trading audits, expanding the role of the lead market maker, and clearer inter-market routing guidelines to rectify market structure problems.  

With regard to the macroeconomic environment, the majority of advisers surveyed expect current market volatility will either increase or remain constant over the next six months, but anticipate another event similar to May 6th in the future, no matter what solutions are adopted.  

Regardless of the cause – economic or structural – advisers identified ETFs as the best investment vehicles to navigate a volatile market environment, followed by bonds and mutual funds. 

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